More To Say About China

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This piece is a little broader in scope that our past posts about China.  That seems useful, since war-mongering in press coverage of China has put us all in blinders.  We’re not claiming here that the Chinese are angels, but there is a lot more to the story that needs to be discussed.

We start with a couple of basic points, of interest regardless of whether we consider China friend or foe:

  1. China is now the world’s biggest economy and is continuing to grow rapidly. Further its population is more than four times the US.  That has many consequences worth thinking about.
  2. China has built itself up from nothing to a world class challenger in many areas. This is not just—or even primarily—a case of “stealing from us”. It is imperative that we understand their example and what we can learn from it.

On the first point, it should be noted to begin with that while the Chinese economy is the biggest in the world, the country is so big that its per capita income is well-below Mexico.  A rising standard of living in China could drive growth in the rest of the world for quite some time.

That is a dramatic turnaround in what China means to the rest of the world.  It is also the reason why virtually everyone expects China’s trade relations to be renegotiated.  Opening China has moved from a largely theoretical matter (because there just wasn’t that much to be sold) to become the primary issue.

This is the time for negotiation, but it’s also a window of opportunity we can easily miss.  In this, as we’ve noted before, a unilateral trade war is actually counter-productive. We’re defending protectionism, when the primary issue is open access to the Chinese market!  Further by insisting on a bilateral deal, we’re substantially reducing the leverage needed to make the deal a success.  The Business Roundtable of corporate CEO’s said as much prior to the start of current negotiations.  This isn’t about trade deficits; it’s about worldwide rules of fair trade going forward.

Trade negotiation, however, is not the only issue here.  US businesses have long had the luxury of focusing on the domestic market.   Economies of scale will now demand a less parochial view.  An obvious example is loosening of fuel economy standards.  That’s a concession to our automobile industry for the domestic market that will hurt international competitiveness.  Another example is 5G mobile equipment.  US vendors are behind the curve, because the domestic market has been fractured and slow-moving.

We are not doing our economy a favor by granting special favors (including tariffs) to domestic businesses.  That’s just perpetuating the idea that winning here is all it takes.  (Tariffs are also an unreliable and inefficient way of producing jobs.)

As for what we can learn from China, we give a few examples

– Government-sponsored R&D pays big benefits.  That is the single biggest contributor to the Chinese success.   They have created a world-class technological empire out of almost nothing.  Even the much-lamented Chinese technology theft is a non-trivial (if nefarious) accomplishment.  How many companies do a good job managing transitions of responsibility even for their own software?

We used to care about the government role in research too.  It was assumed in the good old days of the 50’s and 60’s. Now we have not only cut back on government R&D (Trump’s latest budget is a recent example), but with the current anti-science nostalgia we’re not even sure we want much to do with scientific progress.

– Education is an imperative.  It’s people who make for national success and we need them to be prepared for the jobs that will defend our national standard of living.  China has been ready to spend the money to make it happen.

– We should want to drive up the value chain.  Despite past history, the Chinese understand perfectly that price-competitive businesses are not the way to go.   Real wealth comes from dominant industries with the power to sell on content instead of price.  That’s what technology can deliver.  It’s simply not in the cards to believe past successes will just revive.

– All businesses need to embrace technology for success.  Even in the cost-sensitive outsourcing business, ease of interworking was an important factor in Chinese success.

– Finally (and paradoxically) a dynamic, decentralized economy is a real plus.  This may seem surprising in a list of lessons from China, but it’s strangely true.  The major impetus that kicked off the Chinese economic miracle was an accidental liberalization.  As a small opening, Chinese municipalities were allowed to run independent businesses once they reached their nationally-set production goals.  As it happened, these independent businesses took off and eventually marginalized the state-run enterprises.  Many morphed into successful private companies.  (Xi is now attempting to put that genie back in the bottle, with reemphasized state enterprises.)

We should never underestimate the value of the dynamism of the US economy.  But we had better be careful to understand what has really worked for us.  There has always been an important government role, and diversity mattered too.  In the Chinese example, success was only possible because government provided the environment, particularly education and infrastructure, for the businesses to grow.  In general, prosperity requires both the environment and the opportunity to achieve success.

 

All that being said, what can we say about dealing with China?  A few guidelines:

We are misled if we think “enemy” is all we need to know.  China is an important factor for both good and bad in the world economy.  They were an important help in the efforts that prevented a depression in 2008.  They can be a major locomotive in the world economy going forward.  They contribute to the worldwide development of science and technology—which makes us all richer.  They recognize the importance of climate change.  It is our task to make that all work for us.

To get there we need to treat the Chinese like any other adversary—we should deal with them from strength and look for mutual advantages.

It is not productive simply to dictate, with the idea that we can shut them down by denying them access to our market.  We represent 18% of their export market and much less of their total economy.  That’s plenty to cause trouble, but not enough to dictate, and in any case real pain would hurt us as well.  Further, if we want success in their market, there has to be ongoing mutual self-interest—no signed document will do it.   And there’s a historical side of this as well:  China endured some of the worst of western imperialism in the nineteenth and early twentieth centuries.  That memory lingers, and we are not served by recalling it with our behavior.  Mutual advantage is much better than antagonistic isolation.

We need to extend the rules for fairness in international commerce through the WTO.  As noted earlier all parties recognize this has to happen, and we have historically led such initiatives.  We have twice the leverage in cooperating with the EU (also 18% of Chinese exports), and we avoid the hypocrisy of endorsing protectionism in the argument for opening of their markets.

Matters such as intellectual property protection and theft should be solvable problems, in part because the Chinese now have much to defend as well.  It’s not for nothing that Huawei is well ahead of the curve in 5G development.   Chinese universities are now high on the list of international institutions (even though Western ones still have cachet in China!), and the Chinese are acquiring patents like everyone else.  It’s also true, if seldom noted, that Chinese computer hacking decreased significantly by the end of the Obama years and went way up when Trump declared economic war.

The military installations in the South China Sea are a serious problem, but the fact is that the great majority of Chinese imports and exports pass that way—so it’s not surprising they’re worried about it.  We make that worry all the greater by declaring that it is legitimate to use all resources at our disposal to get the Chinese to do what we want.  The only real solution is some kind of freedom of the seas regional agreement that all parties can have confidence in.

Human rights violations are also important, and we have to keep those issues alive.  It’s hard to know how far we’ll be able to get.  The one thing you can say is that we shouldn’t be too quick to use Xi a stand-in for China as a whole.  We’ve already noted Xi is a throw-back (a “princeling” heir to the Maoist past), so perhaps there is hope for better later.  There are many conclusions to be drawn about us if you take Trump as a stand-in for everything American.

In the end the point is to treat China like any other independent nation.  China as “enemy” has real roots, but also large doses of domestic politics (China has been a convenient excuse for our own misdeeds) and “yellow peril” racism.  China needs to work properly in the international system of trade and ideally also in international security agreements.  Any efforts to avoid a new set of arms races will have to involve them.

Vigilance is fine, but there is at least the potential of much to build on.

Prosperity in Today’s Economy

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The title of this article sounds rather ordinary, but in fact there’s more to say than you might expect.   There aren’t a lot of new facts here, but we bring together several strands of argument that don’t tend to be followed to conclusion.  It’s useful to think step-by-step about prosperity today and going forward.

  1. Our national standing today is largely determined by technology.

There are many aspects to this.  The most obvious one is the role of high-tech companies in the economy.  The NYTimes had an article a few months ago (on the occasion of Apple’s becoming the first $1 T company) with graphic displays showing the size of Apple (as well as Google, Microsoft, Amazon, and many others) in the US economy.  The dominance of high-tech is unmistakable. That’s what supports our standard of living and always has. Railroads, steel, automobiles were all high-tech in their day.  (Note this is not saying that Google or Facebook are angels, it’s our national strength in technology that matters.)

It is only because we are on top of that heap that we have the money that supports the rest of the economy.  That includes much of small business and service industries.  It is from the strength of our competitive economic position that we can pay for the non-competitive industries we choose to support.  The aluminum and steel tariffs are being paid by us from the industries that don’t need them.  To state this somewhat differently—we are not going to build a dominant economy by selling each other stuff anyone can make at artificially high prices.

It’s also worth pointing out, given all the discussions of the military budget, that the technology argument applies in spades for the military.  Building new aircraft carriers is not going to make us safe.  One only has to think, theoretically of course, about the effect of a North Korean virus disabling the military’s command and control.  From the chart below, it is obvious that our level of military spending ought to quash everyone else hands down if money were the only object.  But it’s not doing the job, because that’s not the game anymore.  And it’s not just AI, it’s across the board.

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What all this means is that the people who support our technology position are critical resources who matter to all of us.

This is a lot less elitist than it sounds, because it’s not saying we shouldn’t care about or value everyone else (more on that later).   The point is that we shouldn’t be spending our time worrying about who is or isn’t supplanting whom.  Our success depends on nurturing and exploiting the best and the brightest—at least for these skills—and we had better spend our time trying to find them and encourage them, regardless of race, gender, or sexual orientation.  And if foreigners choose to come here and establish successful startup companies—mostly in high tech—we should be happy they do.  It is a major strength of the US economy that people find the US to be the best place to realize their ambitions.  We erode that strength at our peril.

Anger at elite technologists may be natural, but they are the wrong targets.  Their effect on the rest of us is positive.  What we need to avoid is a two-tiered society of haves and have-nots.

  1. Businesses today are different from the past in important ways.

Since we’ve identified the key role played by the tech sector, it’s worth thinking about what kind of businesses those are.  So let’s take a quick look at Google, Apple, Amazon, Microsoft, and Facebook.

– A first point to notice is that they are all some form of monopoly.  This is not surprising as they are all (even Amazon and Apple) essentially software companies.  Software businesses invite monopoly, because costs of production are minimal. In such cases, research and development costs become primary, and the company with largest market share can afford to offer products with more features than a smaller competitor can.  As automation continues, particularly with AI, similar arguments will apply to much of the rest of the economy.

Managing monopolies is a serious issue:

Monopolies squelch competition.   It is imperative for our success that established companies can’t limit the innovative power of new entrants.  That has been our historical advantage over foreign competitors and is a major factor in any discussion of how we deal with the rise of China.  This is not just a problem with Google, etc.  The demise of Net Neutrality is a classic case of giving in to established players, in this case the major telecom carriers.

Monopolies take more than their share of our money.  Monopoly power limits price sensitivity. Since the determining feature of competition is more often uniqueness more than price point, products are priced at what the market will bear—as with the iPhone or patented drugs.   Furthermore, through manipulation of assets including intellectual property, hi-tech monopolies have been tough to tax.   Apple’s success in this is legendary.   Their windfall from the recent corporate tax cuts is something to behold (and unnecessary as a spur to investment).  It is imperative we learn how to tax monopoly-level profits.

– Next, personal success in these companies requires a high-level of technical competence.   Amazon is obviously a case in point, with two completely different populations:  the mass of box fillers versus the corporate staff.  Note that technical competence is not just a matter for developers, but is also required for the many people in management, support, administration, and even sales.  As just noted, as automation proceeds, this trend will extend well outside of high-tech.

This represents the threat of a two-tiered society, as discussed earlier.  As a country this implies at the very least a basic responsibility for broad-based solid education and a livable minimum wage.

It should be emphasized that strengthening of education is required for both national success and personal prosperity.   Regardless of what advantages we have for staying on top of the heap, we cannot succeed if we don’t have the people to do it.

– Third, all of these business are intrinsically international.  With the growth of the world economy (and China in particular) economies of scale are such that we have to think in global terms.

– Finally our fourth and last comment for this section is about a different trend not limited to high-tech—the institutionalized irresponsibility of business.  It has become gospel that businesses have responsibility only to their investors, and all other considerations are more or less theft.  Businesses used to care about retirement, healthcare, training, even local charity.  But current reality is that if someone is going to care about those things, it’s out of the question for it to be them.

In addition, because of the sheer size of the country, the US more than anywhere else has to deal with the phenomenon of towns or regions where the economic base can just disappear. Company town are the obvious example. In an age of accelerating technology change, we can’t stop such things from happening.   And we can’t expect rescue to happen by all by itself.

However we emphasize this isn’t just about charity.  In the current state of affairs, the private sector is not be doing what’s necessary even to provide the environment for its own success.

That leads to the next topic—what do we need for national success?

  1. Our infrastructure problems mean more than we thought.

Infrastructure has to be thought of as whatever is necessary for national success and personal welfare.  I.e. much more than roads and bridges.  The educational system fits in this category as it is required for both personal and national success.  Declining upward mobility and the student loan crisis are two indications that there is unquestionably a lot that needs to be done.

Support for theoretical research is in the same category.  It is precursor work for new technologies before they are ready for business. A point worth stressing it that it is not only the research itself that is important—research work assures that there will be a population ready to exploit new opportunities as they arise.

Continuing on, we list a few more significant infrastructure projects needing immediate attention.

– The American Society of Civil Engineers keeps a web site with a break down of national infrastructure requirements.  We currently rate a D+.

– To that we add the urgent needs of combatting climate change, which will be considerable, regardless of how the final plans work out.

– Healthcare is currently in flux with ACA under attack and nothing to replace it.

– Finally we have the general specter of a two-tiered society, with all the misery and threat of conflict that represents.  That too needs to be dealt with as a national problem, and there’s no one in this picture other than government to do it.

From the point of view here our much-discussed infrastructure needs—back to the roads and bridges—have to be viewed as bellwethers.  The fact that we can’t deal even with roads and bridges means that we have a fundamental problem funding the common good, and we have to take that head on.

  1. There is a mismatch between the needs of our country and the forces that currently control it.

The governing ideology of this country is simple to summarize:  let the private sector do it and get out of the way.  All government regulation is bad, and taxes are just a brake on the private sector’s ability to make everything great.

The chief beneficiaries of this policy are the ultra-rich funders of the Republican Party, although the problem of money in politics (especially after Citizens United) transcends parties. In this enterprise Trump is largely a front man for the real forces running things.

For these people, with fortunes going back even into the nineteenth century, it’s natural to regard the country as a money-machine.  Taxes, regulations, and government services—except for the military—are deductions off the bottom line.

The problem with that view, even for them, is that it is the wrong model for the world we just described.  That set of policies would make sense in an extractive economy, where all that is necessary for success is a cadre of imported experts to arrange for pumping oil with purchased technology.  In that case you don’t need much from the national population in order to collect the proceeds.

That’s not our situation.  As described, we live in a technology-dominated world where the population must earn our national success.  For that world we’re currently going in the wrong direction.  Devaluing education, denying climate change, cutting research, encouraging xenophobia will get to us sooner than we’d like to think.  China is a formidable challenger.

However, it not so hard to be optimistic if we can just be serious about what needs to be done.  We have all the tools for success:  the money, the work to be done, even the means to avoid a two-tiered society.

The story is not complicated.  If we can return to exploiting our strengths, then we should be able to remain in the technological forefront for our chosen areas of focus.   If we can control the monopolies, then the associated margins in an expanding world economy should yield money enough (if we can collect it) to produce a workable society for everyone ready to participate.

There is certainly no shortage of work in the infrastructure area, and it needs all kinds of people.  In this respect the Green New Deal may be too glib in pinning everything on climate change, but their basic idea is correct.   If we play our cards right, the high technology future will provide the funds to support the infrastructure for its own success and for the prosperity of the nation.

We should not underestimate the job.  Careful and transparent planning is critical—defining exactly what needs to be done to support both the economy and the population.  And then determining how that work can be best supplied.

It should be emphasized is that we’re NOT talking about socializing away the free market economy.  If there’s one bad misconception that needs to be hammered down everywhere, it’s the idea that the private sector is magic for all problems.  We’ve just gone down a long list of things it’s not going to do.

Even Adam Smith was clear about this from the beginning.  The private sector is a participant in the public economy, but that economy will deliver the benefits of a free market only if #1 government keeps the private sector from corrupting the markets (e.g with monopolies and bribes) and #2 government provides the resources (e.g. education and other infrastructure) necessary for success.  That’s the definition of our job.

This will necessarily require a renewed focus on government and public service.  It’s interesting that a couple of recent mainstream books (Volker, Lewis) have recognized public service as an important issue.  In that respect “Green New Deal” isn’t a bad term:  we need to be as serious as Roosevelt’s brain trust in planning for the next stage for our country’s future.

This is a battle both old and new.   In Smith’s words, “The interest of [businessmen] is always in some respects different from, and even opposite to, that of the public …The proposal of any new law or regulation of commerce which comes from this order, ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention.”  Wealth of Nations is only achieved when government does its job.

For Climate It’s Not GND versus CCL

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There has been an alarming trend recently for the two most prominent Congressional climate initiatives to be presented as opponents.  It’s hard to tell if the organizations themselves think that, but it had better not start.   This is destructive nonsense, as the initiatives are complementary and the last thing we need is an intramural fight.

On one side there is the Green New Deal, which has been remarkably successful at rallying the Democratic Party around climate change as a primary issue.  GND tries to be comprehensive enough to be THE Democratic climate initiative.   They have also bundled a number of other key targets (e.g. full employment) into their program to make it clear that fighting climate change is a good deal for everyone.

On the other side is Citizen’s Climate Lobby, which presents itself as bipartisan and is focused specifically on what they call Carbon Fee and Dividend—a carefully constructed non-regressive version of a carbon tax.

These organizations need each other.   Green New Deal has thus far been ambivalent about a carbon tax, but the fact is that without one we are providing a massive subsidy to the fossil fuel industry.   Even a low-ball estimate of the true cost of the carbon dioxide spewed into the US atmosphere comes in at around $1T per year.  One way or another we can’t keep doing that; it’s a huge distortion of the economy toward business as usual.  CCL has done about as good a job as anyone in concept, rollout planning, and minimizing of side effects. (The opposite of the budget shenanigans that produced the Yellow Vests in France.)

On the other hand CCL is just not comprehensive.   A carbon tax will work better in some sectors than others, and there is no question that government will need to manage the whole process:  monitoring progress, making sure it works for everyone, introducing other incentives where needed, and spending money where the private sector is not going to get the job done.   A few obvious examples are preparation of the electrical grid, research spending, and looking after the international aspects of the problem.

As we’ve noted here before, no one has yet produced a real national plan for addressing climate change on some kind of schedule.  We need that level of comprehensiveness and specificity, and cooperation here would be a good first step.

The Epiphany of the Right

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It’s often difficult to understand the logic behind the right’s continued embrace of Trump’s lies and corruption.  In thinking about it, it seems that there is something even more fundamental than identity behind it.  You might call it the epiphany of the right.

This already existed in rather pure form with the Tea Party.  Tea Party participants had the enthusiasm of true believers, and they were pretty clear about their new beliefs.  When interviewers asked people on Medicare and Social Security why they were ready to deny government benefits to everyone else, the answers came down to a simple idea: “I don’t have to care!”.  In Strangers in their own Land, the author asked a Tea Party defender of personal responsibility how a poor child in a drastically underfunded school system was supposed to succeed, and she got the same response. “I don’t have to care”.

That “I don’t have to care” has become the epiphany of the right.  It’s the all-purpose answer.   It not only absolves the believer of moral responsibility, it gets you off the hook for anything you’d rather not think about—say climate change or the actual operation of world economy.  All that nagging about equality, facts, or expertise is optional!

It’s the perfect elixir for the Trump world.  Responsibilities or standards of behavior are gone.  You don’t have to do anything you don’t want to.  Whatever you don’t like can be dealt with by any means, however brutal.  Democracy is just something else to nag about. Same for any other argument.

As with one’s personal life, this kind of behavior feels liberating and great until it isn’t.  But until then—there’s nothing anyone else can tell you!

Climate Change is Not Complicated

The reason for this note is that discussions of climate change have splintered into so many directions that the subject appears more daunting than it ought to be.  Neither the current status nor the path to success is actually hard to see.

  1. Current status

– Evidence for climate change is clear and unambiguous.

The increase in global temperature levels goes back decades, as shown in the following chart (Temperature Anomaly just means the temperature increase over 19th century levels).

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Further the relation of temperature and CO2 in the atmosphere is unmistakable and pushing up inexorably with each year’s burned carbon toward the identified 1.5 ºC danger zone:

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Scientists have even demonstrated (using isotopes of carbon) that the increased carbon dioxide in the atmosphere is due to burning of fossil fuels, not some natural process.  Arguments to the contrary have been largely funded by the Koch organization or the oil companies themselves and typically involve doctored data.  Accusations of conspiracy have been debunked, but are still repeated by interested parties.

– Problems are already happening.

There are two kinds of examples.   For temperature alone, as the first chart showed, we’re continuing to set new records for average global temperature.   The effect on sea ice has been dramatic, and farmers are becoming well-aware of changes in growing seasons.

Individual catastrophic events are harder to pin down, just because it’s hard to develop statistics around rare events.  However, scientists have been able to work through the statistics to show the extent to which extraordinary storms, such as hurricane Harvey, were made worse by climate change.

– Role of climate models.

We don’t need climate models to say there is a problem.  We do need climate models to assess specifically what is going to happen.  For example, we can see that glaciers in Greenland and Antarctica are melting, but we need to figure out how quickly this can happen and what the effects will be on weather and ocean currents.  Since the earth hasn’t been here before (i.e. rapid C02 increase like this has never happened), we have to try to figure it out.

A particular concern is that climate change feeds on itself to accentuate the effects of CO2.  An example is melting of permafrost in the arctic.  That releases methane, which is also a greenhouse gas and adds to the increase expected with CO2.  Climate models are extremely detailed to deal with such effects.  The modeling work is supported by a global effort to get data on what is happening now.  This is a major effort by many independent researchers worldwide to get the best possible handle on what’s coming.

– It’s going to get a lot worse unless we start acting now.

An important fact to be emphasized is that carbon dioxide in the atmosphere just adds up.  So even if we stabilize global production of carbon dioxide, things will just get worse as we add to the total.  For a few years 2014-2016 it looked like CO2 production was stabilizing, but then the trend turned worse, and last year accelerated it.  Here is the current chart.

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As we just noted, even a stable value of CO2 emission means things are getting worse, because it is the total amount of CO2 in the atmosphere that drives temperature change.  The stable value was attractive, because it seemed to indicate that CO2 had finally peaked and might start to decline.  And the decline might mean the total CO2 could be bounded.  We’re now back to worrying about the peak, with no idea how bad things will get.

Scientists have given us a so-called carbon budget—the maximum amount of CO2 we can add to the atmosphere and still escape dangerous, irreversible changes.  Every bit we add counts against the budget.  We have to find a way to get carbon dioxide production down toward zero, and things will continue getting worse until that happens.  According to the last international climate study, CO2 production needs to drop 45%  by 2030 and reach 0 by 2050 if we want to keep the temperature increase under 1.5 ºC.

– Can’t we just pull the carbon dioxide back out later?

There is currently a lot of work in progress on how to capture and store carbon dioxide.  For now, capturing carbon dioxide even in exhaust flues is expensive—it can double the cost of electricity from a coal power plant.  Pulling it out of the air is substantially harder.  Further some effects, like movement of glaciers, are hard to stop even if we pull out the carbon dioxide later.

Earliest use of this kind of technology would be for flue-based solutions in particular industries.  That’s getting cheaper, but it’s no miracle solution.  Large-scale pulling carbon out of the air is not yet available, and the cheapest estimates for a worldwide solution would cost on the order of 10 trillion dollars annually.  Nonetheless, current climate models assume that some use of this technology (expensive or not) will be needed if we are to keep the temperature increase under 1.5 ºC.

– What about geo-engineering?

This approach, which gets sporadic publicity, involves adding chemicals to the atmosphere to block the sun—cutting temperature by putting the whole world in the shade.  A number of different substances have been investigated to do this, and any of them would need to be constantly injected into the atmosphere under supervision by some international body.

As an approach this is much cheaper than carbon capture, but it is regarded as a dangerous last resort even by the people who do the research.  All photosynthesis worldwide would be affected. The closest natural phenomenon, the Mount Pinatubo volcanic eruption in 1991, resulted in a worldwide drought.  It does not address acidification of the oceans, which would continue to disrupt life in the seas.  Further it is a time bomb, as carbon dioxide concentrations would continue to build up, so that the shading and its effects would have to keep increasing, and any interruption would be catastrophic.

 

The bottom line is that there is no silver bullet here; we have to get off burning carbon.   However it’s worth pointing out that this is NOT a death sentence (as we’ll see) and it is also NOT committing us all to a grim world of scarcity.  Even today people buy Teslas because they like them—among other things they’re performance cars—not as sacrifices for the good of mankind.  That’s the right way think about the whole transition.

 

  1. What to do about it

To understand what we need to do about climate change, we first have to think about the kind of world we would be going toward.

A point worth emphasizing is that the future is electric.  If we’re getting off fossil fuels, we’re not going to have people burning stuff all over the place.  So we will be generating power by suitable technology (more on that in a minute), and electricity is the means of storing and distributing that energy.  All renewable sources today generate electricity as the common currency of power.

Since the electric grid is the core for what we need to do about energy, we have two primary tasks:  strengthening the electric grid and getting all users of energy on that grid.  Each needs to be discussed separately.

– Strengthening the electric grid

This is about generating and distributing power.   We of course need a grid that is reliable and safe, but for climate change we’ll need more.  There will have to be considerable growth in electrical power generation (since we’re taking on new roles), and we will want to optimize opportunities for renewables even in the near-term.

At present there are ongoing activities to strengthen our current patched-together national electric infrastructure, but these are long-term projects and not primarily driven by climate change.  Power generation is largely a per-state matter and is quite literally all over the map.  For climate change we have benefited from the near-term improvement of substituting natural gas for coal, but there are still many coal plants and nothing says we have optimized opportunities for renewables.  Ideally we should have a nation-wide plan for growth and modernization that would allow renewable power to be generated where appropriate and used wherever needed.

It’s also worth saying something about the longer-term picture.  Ultimately this is not a story about scarcity and conservation; it’s about alternative power.  Renewables will improve, and there will be other significant new sources of power.  Fusion power in particular has been slow to develop, but should be taken seriously.  It has had a recent impetus with higher-temperature superconductors (for the magnets that contain the fusion reaction), and current international projects target 2033 for a demo system and 2050 for commercial system deployment.  Initial systems will be heat-based, like conventional power plants, but later generation systems may generate electricity directly —a mind-boggling concept.  We have a near-term job to do in saving the planet, but there’s no reason to fear we will ultimately lack for power.

– Making electricity the universal power source

The point of departure here is the following chart showing energy use by sector and energy source.  Our task is a prioritized migration to renewably-generated electricity in all sectors, with the maximum possible bang for the near-term buck.  In this transportation is an obvious target. It is a large consumer of energy (28% of US energy usage) with negligible current penetration of renewables.  Electric cars can be a big win.

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Given the complexity of energy usage overall, the single most important step to encourage migration is to stop pretending that carbon dioxide production is free, i.e. to stop subsidizing the fossil fuel industry.

We can be pretty specific about what CO2 costs us.  We are rapidly reaching the point where each new ton of CO2 in the atomosphere is a ton that will have to be removed.  The cheapest estimates of what it takes to remove CO2 from the air (average of upper and lower bound estimates) is $163 per ton.  Multiply that by the US annual production of CO2 = 5.4 B tons, and the silent subsidy to the fossil fuel people falls out as $880 B annually.  That’s no small distortion of our economy.  Essentially a trillion dollars a year.

The usual approach to this subject goes by the name of a carbon tax, but that’s actually a misnomer.  A tax is money collected to fund some government activity, and that’s not the point here.   We’re stopping a government-funded subsidy of products that produce CO2, and any money raised should be used to mitigate the effect of fuel price increases on the population.

Because raising fossil fuel prices is regressive, balancing costs and benefits is tricky and has led to voter rejection (spurred by massive Koch campaign spending) of several carbon tax proposals.  (The yellow-vest protest in France was from something worse, a budget-balancing regressive tax masquerading as a climate measure.)  The magnitude of the silent subsidy is such that it is necessary to get this right.

One example proposal worth discussing is the Carbon Fee and Dividend from the Citizens Climate Lobby.  They start with a low fee of $15 per ton of generated CO2 at fuel production or port of entry, but raise the value $10 per year afterwards.  That money gets returned per adult with an added allowance for children.  The gradual increase is in part a low entry but it also allows for increasing maturity of competing technologies.

That proposal is now a bill in Congress, and there was a recent endorsement by a number of economists and other public figures.  It may or may not become part of the Green New Deal from the Congressional Democrats.  One way or another carbon pricing is so fundamental it just has to be fixed.

 

  1. Outline of a plan

The energy use chart from the last section says a lot about how this has to work.  Going down the chart, we can say the following:

– Transportation

Thus far this sector has had virtually no penetration of renewable energy sources, so its importance cannot be overestimated.   The only alternative is electric power, so we need incentives to finally get a non-trivial market share.  Carbon pricing will help, but we may need more. We’ve had incentives in the past to help electric car makers get into business.   Now the issue is the continuing cost of carbon.

– Industrial

The ongoing migration to natural gas shows the price sensitivity of this sector.  That trend toward gas should continue, and we need to start more movement onto the electric grid.  Carbon pricing should help here too, and there should be active discussion with industry to determine what form it should take.  Flue-based CO2 capture may also be appropriate in some cases.

– Electric power

We already noted the major contribution from this sector in the conversion from coal to natural gas.  That should continue with the non-trivial number of remaining coal plants, but we still have to get to renewables.   Everything that happens in this sector should flow out of a national plan for evolution of the power grid, as discussed before.  Some coal plants or even gas-powered plants may be supplanted by renewables elsewhere.

– Residential and Commercial

We should recognize that this sector is significantly smaller and with many subsectors to be considered.  The conversion to natural gas is already well-underway and the remaining petroleum sectors (e.g. New England) may not be easy to change.  So we need to map out conversion to electric or possibly even flue-based CO2 capture.   The first step is a more detailed plan.

 

We also need to call out the need to support research, as it is an unavoidable part of the picture.  That applies both for new energy sources and storage, and to the various activities underway to understand climate change and how we will have to adapt.

 

  1. International coordination

Thus far our discussion has focused on the US, but we’re only one piece of the puzzle.  Despite the nationalist rhetoric, there is only one atmosphere for everyone.   Helping other countries helps us, and poorer countries have fewer resources.  The following chart underlines the importance of that effort—the “others” are becoming the biggest piece.

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There are actually two points to be made.   First, the Paris Agreement included an initial arrangement between rich and poorer countries, so that progress could be made.  That codified a fund (trashed by Trump) to help poor countries meet their targets.  However the issue will continue to be contentious, and one way or another we will have to contribute.  The just-completed Polish meeting was able to end without a breakdown on this subject, but it wasn’t easy.

Second, our contribution may turn out to be more than just money.  Other countries will have energy use charts that won’t look anything like the one we’re been considering.  They may need different forms of technology to support different evolution plans.  We should use our resources to see what can be done.

In the past the US recognized a responsibility to lead this process.  In Poland, the process managed to keep going without us, but it was certainly touch and go.

The world needs our contribution to leadership. That means it is doubly important to put our own house in order .  We need to know where we’re going for ourselves, and so that we can help the rest of the world in this effort to preserve our common future.

Getting Productive with China

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This is yet another note about China. It’s hard to stop thinking about it, as our current policies are both dangerously unproductive and difficult to undo.

Let’s start by believing the worst.  Suppose the Chinese really do represent the devil incarnate—the third Reich back again for another racist attempt at world domination.  What should we be doing in that case?

The answer is clear.  The Chinese have a huge population, world-class technology, and the industrial might to back it all up.  They are a formidable adversary, and need to be confronted (as in the past) by a world united against them.  What we need are strong alliances, in the Far East and elsewhere, to counteract the threat.  That alliance must be ready to act in everyone’s interest, with partners able to trust each other’s long-term commitments and no one looking to make a few bucks off the others on the sly.

We just failed that one, so let’s back the threat down.  Suppose the Chinese threat of domination is economic, not military and political.  In that case we need to protect world-wide supply chains, so the Chinese can’t just pull the rug out from under the existing order.  And we need clear rules defining fair trade, so that it’s obvious who is a renegade.  That sounds like some version of TPP and the WTO—so the highest priority is getting those right.  (TPP can’t be too bad, since large chunks of it were taken verbatim in the new version of NAFTA.)  What it doesn’t sound like is our modern version of protectionism, where we reserve the right to do anything we like and impose it unilaterally on anyone else.

Now let’s add one more element to the picture—China is the largest most rapidly growing market in the world.  This is an item of some interest, although it doesn’t get the press it deserves.  For one thing China has just added an inconceivable number of people to the world’s middle class.  One of our grievances is that China has not opened its markets as it should.

There are two remarks to be made.   One is that China has only recently developed enough of an upper middle class to be an effective market for us.  This is a matter for emphasis now, and the maximum leverage is when the US and EU work together (each representing 18 percent of Chinese exports).   There are actually multiple reasons to be guardedly optimistic about current prospects for negotiation.

Second, the fact is that as a country we’re actually rather reluctant exporters.  Our domestic market has always been so large as to be primary.  Going forward, this is a matter of some concern.  For example we claim we want to sell cars in China and elsewhere, but we’re relaxing environmental regulations to help our manufacturers—and guarantee that the mainline production won’t be acceptable in most other countries.  Denying climate change has the same kind of effects across the board.  We can’t forget that open markets are only the first step to actually selling the stuff.  Even today the Europeans, with the same level of Chinese imports as us, have a substantially lower trade deficit.

As a next point, in formulating China policy we should at least make an attempt to think about things from their point of view.  That doesn’t justify it, but we have a large blind spot if we don’t try.   It’s a worthwhile exercise independent of whether we like their current leadership or not.

On that subject the primary factor is that China underwent some of the worst effects of western imperialism, lasting well into the twentieth century.  The Opium Wars deserve their name.  The British made fortunes with opium produced in India and sold under military protection in China.  And the rest of the West joined in.  The Chinese had expected some help in the aftermath of World War I, but were denied.

It is not surprising that the Chinese feel both suspicion and hostility toward the West, as well as a need to be fully in control of their own destiny.  In that light it is easy to imagine the attitude of the Chinese toward Trump’s initial set of demands in the trade war, expressed as terms for unconditional surrender.  It probably made Trump feel important and powerful, but it’s hard to imagine anything less likely to produce real cooperation. As for Chinese attitudes toward the South China Sea and intellectual property, we should remember the “Monroe Doctrine” and the heroes who brought British textile technology to the early US.  That’s not to say they’re right; it’s just counterproductive—and frequently delusional—to approach international cooperation as a moral crusade.

The only solid basis for relations with China (or anyone else) is shared interest—again regardless of whether we like their current leadership or not.  We’re not going to defeat them—in either military or economic terms—so it’s crazy to assume that’s the right model for policy.  (You can even go farther and say that’s it’s not even in our interest, but we don’t have to go that far here.)  They’re no more willing to capitulate than we are, so it’s a lot more productive to stay in the real world.  Mutual trust is a requirement for success.

With that we can make some suggestions:

  1. We should be negotiating rules for open markets and intellectual property protection as a matter for the WTO. As noted, there is ample basis for agreement of those subjects going forward, so there is reason for guarded optimism—meaning not just agreement but cooperation.  To be clear, the US has historically won 85% of its cases with the WTO.
  2. Technological competition with China is inevitable. They are already formidable competitors, but our strengths and weaknesses are different, so there is room for both of us in a growing world economy. Above all we should recognize and take care of our own strengths.
  3. We have work to do in preparing our economy for a world where the outside is at least as important as the domestic market. Not being the world’s biggest economy is a big change.
  4. We have even more work to do to make sure that the whole population profits from an ever more highly-integrated and highly-automated world. That’s not only a moral requirement, but the only way to defeat the parasitic demagogues who threaten to take over here and elsewhere.

Saving the Country

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This note grows out of a comment made during the election night coverage of the midterms.  Analysts were breaking down the vote in various categories, and one of them remarked that if you just look at white voters, this seems like a completely different country:  Republican voters outnumbered Democrats 3 to 2.  They were all-in for the Trump program.

It’s worth paying attention to what that means.  Diversity is not a matter of tolerance; it’s a matter of national success.

Immigrants and their families are assets by any statistical measure.  They need to work harder to succeed, and they do it.   As the various waves of immigration entered this country, they have adapted and prospered, and the country as a whole has benefited.  It’s no accident that the most prominent players in our new economy—Google and Apple—were founded by an immigrant and the son of an immigrant.

But there is another aspect to this as well.   Outsiders (and not just immigrants) are not so easily tempted by images of an idealized past paradise.  Those siren-song images are not from their past, so they can keep focused on reality and the future.

Despite the many similarities between the Trump regime and the early stages of the “illiberal democracies” of Poland and Hungary, our diversity provides perhaps a degree of protection.  White voters have not called all the shots in the midterm election.  And it’s possible to believe that we’ve taken a first step back from the brink.

The problems of the Trump regime affect everyone.  First and foremost, we are squandering our strongest economic advantages out of ignorance and arrogance.  And we are at each other’s throats by conscious choice.  Dictatorships are not just bad for outside groups, they are historically bad for everyone.

So we should give credit where it’s due.  Three cheers for diversity in all of its shapes and colors—the saviors of the country!